In California, a corporation is deemed to be a “person.”  [Cal. Corp. Code Sec. 28043].  It has most of the same rights as does a “natural person” (a human being rather than an artificial entity such as a corporation or LLC), including the rights to incur liabilities, borrow or lend money, or carry on a business for profit [Corp Code Sec. 5140].

However, the corporate powers, rights and privileges may be suspended or forfeited by the Franchise Tax Board if

(1) the corporation fails to pay franchise taxes on time;

(2) fails to file a required annual information statement; or

(3) fails to file a franchise tax return, even when no tax is due [California Revenue and Taxation Code Section 2330.5].

If that happens, the corporation may not prosecute or defend an action in a California court, appeal from an adverse judgment, or request renewal of an existing judgment.  [Timberline, Inc. v. Jaisinghani, (1997) 54 Cal. App. 4th 1361].

This means that a suspended corporation cannot file a lawsuit to collect money it is owed, or if it is sued, cannot file an answer in the lawsuit. 

Furthermore, it is illegal for any individual acting on behalf of a suspended corporation to exercise any corporate powers.

California Revenue and Taxation Code Section 19719 says, “Any person who attempts or purports to exercise the powers, rights, and privileges of a corporation that has been suspended pursuant to Section 23301 or who transacts or attempts to transact intrastate business in this state on behalf of a foreign corporation, the rights and privileges of which have been forfeited pursuant to the section, is punishable by a fine of not less than two hundred fifty dollars ($250) and not exceeding one thousand dollars ($1,000), or by imprisonment not exceeding one year, or both fine and imprisonment.”

Thus, a director technically could not cash a check payable to the suspended corporation.  Nor can attorney represent a suspended corporation in a lawsuit.

If a suspended corporation is reinstated, then it can prosecute or defend lawsuits.

For a free consultation regarding this, or other issues regarding debt collection or bankruptcy, call now (213) 509-1515.